Rate, Rate, Don’t Tell Me: How the Fed Could Blunt China’s Growth

A customer is served at a counter at a foreign exchange store in Hong Kong, China, August 13, 2015.

REUTERS

China’s new pledge to depeg its currency from the U.S. dollar underscores a difficult fact for Beijing: the U.S. Federal Reserve could blunt its efforts to rekindle Chinese growth. As WSJ's Lingling Wei reports:

The Fed is widely expected to raise rates this week amid signs of a strengthening U.S. economy. Meanwhile, China’s economy is going the other direction, with Beijing cutting interest rates and making other moves to loosen monetary policy and spur slowing economic growth.

A U.S. rate increase could hinder that effort. It would likely make the dollar stronger, forcing China to intervene in currency markets to maintain the peg. That means buying yuan, often from Chinese banks, which effectively takes money out of China’s financial system at a time when Beijing is trying to make more available to its businesses and consumers.